The USDCAD pair remains stable as the soft economic data from both the US and Canada balanced each other. The USD weakened after a soft NFP report, with market expectations now leaning towards three rate cuts by the end of the year, totalling 70 basis points. There’s a 10% chance of a 50 basis points cut in September, contingent on a soft CPI report on Thursday, which could further weaken the USD heading into the FOMC meeting.
The US dollar is generally ranging, with dovish bets on the Federal Reserve weighing heavily, possibly due to overextended bearish positioning. Strong economic activity could alter future rate cut expectations and support the dollar, although the current trend leans downwards without stronger data. On the Canadian side, weak employment data led to a broad sell-off in the CAD, with market pricing indicating a rate cut in September and an additional 44 basis points cut by year-end, despite underlying inflation pressures and a weakening labour market.
Technically For USDCAD
Technically, the USDCAD pair is showing patterns on multiple timeframes. On the daily chart, rejections around the 1.3860 level suggest a head and shoulders pattern, needing a break below 1.3720 for confirmation. The 4-hour and 1-hour charts indicate a rangebound action with defined risk and potential moves towards the 1.40 handle or lower towards 1.3550. Upcoming catalysts include the US PPI, CPI reports, Jobless Claims figures, and the University of Michigan Consumer Sentiment report.
Based on the current stalemate in USDCAD, we see the pair coiled tightly between key levels. The soft US jobs numbers from last Friday, which showed Non-Farm Payrolls adding just 155,000 jobs in August 2025, have amplified bets on Federal Reserve cuts. This has effectively cancelled out the pressure from Canada’s own weak employment report, leaving the pair directionless for now.
The market has now priced in roughly 70 basis points of Fed cuts by the end of 2025, a dramatic shift we’ve seen build over the past quarter. This dovishness is the main force weighing on the US dollar, especially after the August 2025 CPI report showed core inflation slowing to a 2.8% annual rate. However, with so much easing already expected, we might be at a point of peak pessimism for the dollar.
Canadian Economic Outlook
On the Canadian side, the situation is precarious after Statistics Canada reported a net loss of 20,000 jobs and a rise in the unemployment rate to 6.3% for August 2025. This has cemented expectations for a Bank of Canada rate cut in October, putting a cap on any Canadian dollar strength. The central bank is now caught between a weakening labour market and inflation that is still not fully under control.
For derivative traders, this setup ahead of this week’s US inflation data suggests a volatility play. The clear range between 1.3720 and 1.3860 makes an options strangle an interesting strategy. By buying both a call option above 1.3860 and a put option below 1.3720, a trader can profit from a sharp breakout in either direction following the data release.
Should the upcoming US CPI report on Thursday come in weaker than anticipated, we would expect a decisive break below the 1.3720 support level. This would likely confirm a bearish head and shoulders pattern that we’ve been watching develop since July 2025. A move like this would shift our focus towards the 1.3550 area as the next logical target.
Conversely, an unexpectedly hot inflation number could force markets to quickly scale back their Fed cut expectations, triggering a powerful US dollar rally. In this scenario, a break above the formidable 1.3860 resistance would be our signal to anticipate a sustained move higher. The next major target for bulls would then become the psychologically important 1.4000 handle.
